What's a limitation of payback period?

It ignores the time value of money and any cash flows after the payback point, unlike NPV or IRR.

Payback Period Calculator

Payback period estimates the time required for an investment's cumulative cash flows to equal its initial cost, assuming even annual cash flows.

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Formula

Payback Period = Initial Investment / Annual Cash Flow

Payback Period vs. NPV: Two Ways to Evaluate the Same Investment

The payback period and net present value formulas explained side by side, showing what each one misses.

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